African Bank, that is not very good

On Friday news hit the wire that the National Credit Regulator (NCR) lodged a complaint against African Bank for making reckless loans, predominantly in KwaZulu-Natal. The complaint states that Abil granted loans to at least 700 consumers who could not meet the instalment requirements and that the tribunal should impose a fine of R300 million.


This goes back to November 2011 when the bank found out three Abil employees who were colluding with clients in order to give those clients loans they wouldn't normally qualify for. The capital value of this fraudulent activity came to R15.5 mil or 0.01% of loans granted that period for the group. This activity which took place in the Dundee branch is what the NCR are specifically targeting.


Before reading any responses from African Bank it is immediately obvious that R300 million is completely excessive for the extent of the irresponsible loans. It is also clear that this was as a result of fraudulent activities against the organisation which there security system eventually picked up on. There was no intent on behalf of the bank to make these loans.


On the news the share price dropped 6% but as people started to see the facts behind the allegation the share price came back all the way to close flat. This is not the first time the NCR have hauled African Bank in front of the tribunal and it won't be the last.


Leon Kirkinis the African Bank CEO was on CNBC late Friday afternoon with his side of the story. Here is what he had to say. ABIL to Face R300mln Fine for Fraudulent Activity.


I understand that Abil are responsible for their employees at the end of the day but because they were in collusion with clients it is not as though the clients taking out the loan were oblivious to what was going on. These clients knew that they did not qualify. Well that is the way I see it. Regardless the amount is excessive and I am sure Abil will come out of this allegation intact.


The biggest issue I can see is that it is shining a dim light on an industry that is already in the dog box. People see the headlines that an unsecured lender has been irresponsible and immediately an even more negative picture is painted. Like I have mentioned before, the company has grown earnings but the share price has not followed suit because investors are scared of the industry. At this stage, when the company's image is tarnished, this can only bring negative publicity.